Japan’s Government Is Helping Sony Corporation (ADR) (SNE) Win the Console War

Japan’s ambitious new monetary policy could soon claim its first victim: Microsoft Corporation (NASDAQ:MSFT)’s latest console, the Xbox One.

The retail prices of Microsoft Corporation (NASDAQ:MSFT) and Sony Corporation (ADR) (NYSE:SNE)’s newest consoles were unveiled on Monday. The Xbox One will start at $499, while the Playstation 4 will be priced $100 less.

For video game consoles that will feature many of the same games, a 20% difference in price is a fairly big deal, and it could entice the majority of gamers to go with Sony Corporation (ADR) (NYSE:SNE)’s machine instead of Microsoft’s.

Japan’s new monetary policy

Since his election last December, Japanese Prime Minister Shinzo Abe has pushed aggressively to expand his country’s monetary policy. The Bank of Japan has set an explicit inflation target, and has undertaken aggressive quantitative easing measures.

The net effect of all this has to be weakening the yen.

Over the last six months, Japan’s currency has weakened significantly against its US counterpart. The dollar-yen exchange rate fell from 80 last November to 103 last month. It has corrected somewhat, but still sits near 100.

Incidentally, that 20% move corresponds directly to the 20% difference in price between the Xbox One and PlayStation 4. Of course, the devices aren’t exactly the same — they use slightly different components. But Sony Corporation (ADR) (NYSE:SNE)’s latest console is actually said to have more powerful hardware than Microsoft’s.

It doesn’t seem like much of a stretch to assume that the weaker yen could have played a role in Sony Corporation (ADR) (NYSE:SNE)’s decision to undercut Microsoft.

Will the Xbox One fail?

The Xbox One has already faced immense backlash from the gaming community. Specifically, users are turned off by Microsoft’s confusing used-games policy and Internet connection requirement. Add a $100 price difference, and a large swath of Microsoft devotees could be making the switch to Sony Corporation (ADR) (NYSE:SNE).

Of course, that’s far from guaranteed. The Xbox One packs a number of features Sony Corporation (ADR) (NYSE:SNE)’s PlayStation 4 lacks. Microsoft has invested heavily in the Xbox One’s home entertainment abilities: it offers users the ability to control their cable box using their voice, for example.

Microsoft has also put a lot of emphasis on its cloud gaming servers. These servers should allow game developers the ability to push the Xbox One’s capabilities by shifting some of the processing workload to the cloud.

At this point, it’s still too early to declare the next Xbox a dud. But if it does fail, that $100 could be a major factor.